Kiplinger’s Personal Finance — September 2017

56 KIPLINGER’S PERSONAL FINANCE^ 09/2017

INVESTING

ROBOTS CAN DO ALMOST ANYTHING: DRIVE

a car, mix a cocktail, vacuum the house

and even manage your investments.

What they can’t do, however, at least

when it comes to investing, is give you

individual attention. And many inves-

tors want a small dose of human con-

tact from their robo adviser, especially

as their financial lives become more

complex. So an increasing number

of automated offerings now include

a real person. In the growing world

of hybrid services, which marry digi-

tal advice with human advisers, here’s

how to find the combination that suits

your portfolio and your pocketbook.

Booming business. When robo advisers

first became popular five years ago,

they were hailed as transparent, low-

cost investment solutions, especially for

investors just starting out. Answer a

few questions online and the automated

services, using complex algorithms,

would match you with an appropri-

ate, diversified portfolio of low-fee,

exchange-traded funds tailored to your

time horizon and tolerance for risk.

The robots monitored and rebalanced

your investments in tax-efficient ways,

all with almost no human interaction.

Young investors and the tech-savvy

gobbled it up. (The rising popularity

of indexing and ETFs, the bedrock

of most robo portfolios, helped.)

Assets swelled at robo outfits, such

as Betterment, Wealthfront and

Schwab Intelligent Portfolios. In

its first two years, from March 2015

through March 2017, Schwab’s service

amassed $16 billion in assets.

At the same time, a regulatory

sea change was channeling advisers

toward robo technology. The Depart-

ment of Labor’s fiduciary rule, in effect

since June, requires anyone giving in-

vestment advice regarding a 401(k) or

an IRA—including, for the first time,

securities brokers—to act in the client’s

best interest. (Previously, brokers

simply had to recommend suitable in-

vestments.) Brokerage firms revamped

their practices to comply with the new

rule. Some firms swapped their com-

mission-based pay structure for one

that charges clients a fee based on a

percentage of assets under manage-

ment. At the extreme, some brokers

and money managers have raised their

minimum investment requirements

or asked clients with small balances

to rely on customer call centers in-

stead of a dedicated adviser. Says Juli

McNeely, a former president of the

National Association of Insurance and

Financial Advisors: “Those small ac-

counts will have to find another place

to get advice.”

Enter the hybrid. All kinds of finan-

cial-services firms have launched robo

offerings or partnered with shrewd

financial-technology firms to deliver

Robos Get the

Human Touch

More automated advisory services are giving clients the chance

to consult with financial planners and investment counselors.

BY NELLIE S. HUANG

ADVICE

PHOTO-ILLUSTRATION BY C.J. BURTON